Rising inflation, underinvestment expose new vulnerabilities in global energy market

Rising inflation and underinvestment in physical supplies have exposed new vulnerabilities in the global energy market as financial and physical markets continue to tighten, says Joseph McMonigle, secretary general of the International Energy Forum (IEF).

During his opening remarks at the 9th Joint IEA-IEF-OPEC Workshop on the Interactions between Physical and Financial Energy Markets, McMonigle said that producers and consumers must have this in mind when engaging in risky investment or understanding the evolution of energy costs for consumers.

The joint meeting was chaired by Ayed S. Al-Qahtani, director of research division, OPEC, IEF’s secretary general, and Toril Bosoni, head of oil industry and market, International Energy Agency (IEA), according to a statement by the Organization of the Petroleum Exporting Countries (OPEC).

“What this past year has shown us is the need for the continued monitoring of factors driving volatility in energy-related financial markets, and how it can impact not only the short term but the medium and long term too,” said Haitham Al Ghais, secretary general, OPEC, in his welcoming remarks.

He said that, when required, OPEC Member Countries and their partners within the ‘Declaration of Cooperation’ have undertaken extraordinary efforts to stabilize the oil market in these extraordinary times, in the interests of producers, consumers, the oil industry, and the wider global economy.

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“This is on the physical side of the oil market. On the financial side, we have been observing an accelerated trend in speculative trading, with investors and other players trading futures and options at faster rates, sometimes severely impacting market liquidity and hindering price discovery mechanisms,” Al Ghais said.

Bosoni added that volatility remains a risk for energy markets. The last three years have underlined the impact of supply and demand shocks and financial markets on energy price movements.

“The broader consequences concern particularly inflation and investment to meet supply and respond to the energy transition. The IEA appreciates the depth and expertise shared by today’s speakers, who brought substantial insight to the discussion,” she said.

According to OPEC, the joint workshop is a part of the trilateral work programme established by the three organizations and endorsed by energy ministers at the 12th International Energy Forum in Cancun, Mexico, in March 2010.

Since then, the joint IEA-IEF-OPEC meetings covering the evolving inter-linkages between physical and financial energy markets have developed into a unique, high-level technical event that brings together a diverse range of market participants to discuss issues that are not addressed in other high-level fora.